HALF the liquefied natural gas (LNG) plants proposed in the Australia-Pacific region may be delayed as increased competition and a skills shortage threaten profitability, Bank of America Corp’s Merrill Lynch said.
A growing number of supply options for Asian LNG customers could hurt the prices producers receive and give buyers the advantage in contract negotiations, Mark Hume, a Merrill Lynch analyst based in Sydney, wrote in a report to clients.
“Project attrition, delay and even outright cancellation are inevitable,” Hume said.
Woodside Petroleum Ltd, Chevron Corp and Royal Dutch Shell Plc are among energy companies in Australia competing for LNG customers and seeking to tap demand for cleaner-burning fuels.
About half of the 30 proposed processing plants in Australia and PNG may stay on schedule, he said.
“We think it’s time to get selective,” he wrote in the report dated Jan 15. BG Group Plc, Inpex Corp, Oil Search Ltd, a partner in Exxon Mobil Corp’s PNG venture, and Origin Energy Ltd are Bank of America Merrill Lynch’s “preferred global LNG supply-side picks,” Hume said.
Most of the companies in the state of Queensland planning to convert gas extracted from coal seams into LNG, a grouping that includes Origin and BG, use the same technology to liquefy the gas and could collaborate to boost profits, he said.
Hume didn’t specify how the rivals could work together.
A shortage of engineers and other specialists could push labour costs higher, and the emergence of floating LNG plants with “clear cost advantages” over land-based facilities could add to the pressure facing ventures using conventional technology, he said.
While annual LNG demand is forecast to grow to 384 million metric tonnes by 2020, exceeding supply, “it is a far cry from the heady days of 2007 when expectations were for demand to grow to circa 500 million tonnes a year,” Hume wrote.
Rising domestic gas production in China may reduce demand for imports, Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd. wrote in a Jan 12 report.
Supplies from Qatar and increased use of nuclear power generation in Asia are among other risks for Australian LNG ventures, he said.
LNG processing units proposed now may generate lower returns than similar developments approved in recent years, Wood said.
About half of the growing list of proposed LNG projects may be approved, the Macquarie analyst said in the report.
“While we continue to see huge value in the large portfolio of undeveloped LNG projects held by Australian companies, we nevertheless believe investors should brace themselves for project delays, higher construction costs and the potential for a more competitive pricing environment going forward,” Wood said. – Bloomberg